ERF 22nd Annual Conference on:Towards a New Development Agenda for the Middle East

Prior to the Arab awakening at the end of 2010 and early 2011, the development strategies of Arab countries underwent big swings, from state-led development strategies to market-based recipes for development. These strategies yielded partial benefits, but they failed to convince the majority of the populations that their standards of living had improved. Then came the uprisings, which provided an opportunity for a new political settlement and opened the door for embarking on a new development agenda. The unsettling observation is that five years on, countries in transition are still searching for answers to at least three main questions: What is the best way to navigate the transition in the short run, while maintaining a balance between pressing political demands and scarce financial resources? In the medium to long run, what should the main features of a new development agenda that meets the aspirations of citizens for inclusive and sustainable growth be? And, since some countries in the region are still mired in bloody conflicts, what can be said about development under these conditions and beyond? These questions will be addressed successively in the three plenary sessions of ERF’s 22nd Annual Conference.

Plenary Session 1: Navigating the Transition in the Short Run
The recent Arab uprisings were associated with political instability resulting from the collapse of an old regime and the absence of a new one. In turn, political instability caused economic conditions to deteriorate, while popular demands for privileges by different groups intensified. Navigating the transition, both politically and economically, is thus proving difficult and interim governments in transition countries made different choices to deal with the situation. The speakers in this plenary session will assess the merits of the choices made and their consequences in comparison with other transition experiences.

More concretely, the speakers will address questions such as: Which approach did the transition countries in the region follow, especially with respect to macroeconomic policies? Was the approach expansionary or contractionary? Did they primarily rely on fiscal policy? Was the response adequate or excessive? Moreover, in relation to politics, how did the political landscape constrain policy choices and policymaking? Did economic outcomes impact political developments? How so? More broadly, did governments strike a healthy balance between achieving political and economic objectives or was the focus on political objectives too costly economically?

Plenary Session 2: Navigating the Transition in the Medium to Long Run
In the medium to long term, the storm would typically begin to calm down, both politically and economically. Uncertainty begins to diminish, new political institutions emerge and governments would tend to have a longer time horizon than interim governments. Signs of responses to the demands of the revolutionaries for inclusive economic growth should now also be more apparent. The main question addressed in this plenary session is whether or not transition countries in the region, five years after the uprisings, are indeed showing signs of breaking away with past ineffective policies.

More concretely, the speakers will assess progress in Arab transition countries by dealing with
such questions as: Are governments in the region beginning to adopt policies that promote sustainable economic growth and structural transformation, for example by adopting new industrial policies and aggressively dealing with major price distortions (like energy subsidies)? Are they embarking on different social policies that not only protect the poor but also empower citizens? Are they pursing redistributive policies that are different, in terms of scope as well as instruments and approaches, from those in the past? Are they building a solid coalition for reform? Finally, are they or are they not capitalizing on opportunities offered globally, curbing crony capitalism, and reforming the state to be less corrupt and more effective?

Plenary Session 3: Development under Fire
For a subset of countries in the region, including Syria, Iraq, Libya and Yemen, the ongoing conflicts pose the most difficult challenge for the formulation and implementation of a new development agenda. Lacking an acceptable political settlement, governments are too busy with war to focus on policymaking for development. The key questions in this plenary are: What can be done under these conditions in the short run? And what can be done to prepare the ground for sustainable development in the post-conflict era? In addition, the speakers could address questions such as: What are the root causes of the conflicts? What is likely to happen in the future? And is the economy part of the problem or is it part of the solution?

Special Events
For over 20 years, ERF has supported sound research in various fields of economics. In more recent years, special attention was given to a few themes, where knowledge gaps about the region were obvious. The main findings of the work on two of these themes (labor and natural resources) is the subject of the two special sessions this year.

Labor Markets in the ERF Region
Issues of employment and unemployment are clearly critical in the ERF region. Yet, not enough analysis was carried out, especially using micro data, to explore how the labor markets in the region function and the root cause of the mismatch between the supply of and demand for labor. Also less understood were issues of migration, informality, gender, and youth employment and the impact of government regulation. Most of these questions have been the subject of intense work by ERF for at least a decade. This session is intended to share the main findings of this accumulated knowledge.

Natural Resources and Diversification in Arab Oil Exporters
The ERF region is distinguished by its abundance of natural resources, especially oil. It was therefore necessary to devote time and resources to better understand issues of macroeconomic management and diversification under these conditions. This special session is held to share some of the key findings on these questions. It will cover issues such as the conditions under which oil abundance can be a curse or a blessing, the link between oil revenues and economic growth, and the potential for economic diversification and the role of industrial policy. In addition to discussing macroeconomic policies, attention will be given to macroeconomic institutions, the influence of politics and economic outcomes.

In this paper, we ask whether private pension savings crowd-out non-pension savings of the households in Turkey. This is a particularly important question for the Turkish case, because the private pension system is often argued to lift up the low aggregate savings and, therefore, reduce the country’s external financing burden.

In this paper, we use multilevel models to simultaneously analyze individual and contextual factors that might affect the total factor productivity of Tunisian manufacturing firms for the period 1998-2004.

This paper examines the factors that cause and affect intergovernorate migrations in Tunisia, with special focus on the role of regional socio-economic disparities in driving large internal migration streams.

This paper investigates the effect of local informal competition on productivity of formal firms in Egypt. Using the World Bank’s Enterprise Surveys, we update the two-step methodology of Guiso et al. (2004) to build an activity-based indicator of informal competition.

The growth model at the Sala-i-Martin (1991 and 1992) fashion is revisited in order to take into account the interdependence of growth across countries based on the idea that outcomes are subject to mutual influence through a set of geographical, cultural, economic and financial determinants that are likely to condition growth propagation between economies through the world.

We study empirically the reaction of fiscal policy to changes in the permanent and transitory components of GDP in a panel of countries. We find evidence that government spending tends to be counter-cyclical conditional on temporary shocks and pro-cyclical conditional on permanent shocks.

The paper contributes to the discussions on budgetary institutions and fiscal governance in Egypt. It reviews different fiscal influences of three interrelated institutional factors: the political setting and electoral, the level of centralization of the budget process, and the quality of budgetary institutions.

This paper contributes to the literature on the determinants of Business Cycle Synchronization with the aim of assessing the impact of several channels (trade, finance and remittances) on international business cycle co-movements.

The potential ability of transport infrastructure investments to produce transport benefits depends on the travel time reductions and accessibility. In this paper, we use an interregional computable general equilibrium (CGE) model to estimate the economic impacts of transportation cost change due specifically to changes in accessibility induced by new transportation projects.

The goal of this study is to suggest alternative simulations of equalization transfers using both fiscal needs and fiscal capacity to fill the fiscal gap so as to mitigate the disparities among states. As is probably well known there is serious data problem, especially information, with regard
to states level. So this study would have to cope with the absence of sufficient data to apply complex measures of fiscal disparities in Sudan.

This article investigates the causal relationship between renewable and non-renewable electricity consumption, GDP and CO2 emissions for North and South shore of Mediterranean over the period 1980-2012. Panel unit root tests, cointegration technique allowing cross-section dependence among the panel and causality tests are used
to investigate this relationship.

After three successive general election victories and an astonishing level of economic growth, there have been increasing concerns about the distributional consequences of macroeconomic policies implemented by the AKP government in Turkey.

The goal of this paper is to explore some elements of these features, focusing in marriage distribution of ‘who marries whom’. The objective is to answer the question of how Egyptian, Moroccan and Tunisian select their partners.

Despite rapidly rising female educational attainment and the closing if not reversal of the gender gap in education, female labor force participation rates remain low and stagnant. Even if increases in participation are observed, they are typically in the form of rising unemployment. We argue in this paper that female labor force participation among educated women in four MENA countries – Algeria, Egypt, Jordan and Tunisia -- is constrained by adverse developments in the structure of employment opportunities on the
demand side.

In the present study, I estimate a hazard duration model for the duration to marriage and I compare between ever-migrants and never-migrants to see if migration has helped shortening this duration of transiting from non-marriage to marriage.

The purpose of this paper is to investigate the school-to-work transition of graduates from subsequent graduation cohorts between 2005 and 2012 in Egypt. This paper compares the early employment outcomes of those graduates after the 25th January 2011 revolution to that of those who graduated before 2011.

We study the extent to which temporary overseas migration enables returnees to climb the occupational ladder. Using data from Egypt, we examine the occupational mobility of returnees relative to non-migrants for the same labor market entrants’ cohort. We rely on instrumental variable approach but also employ Difference-in-Differences, as well as Difference-in-Difference matching techniques to control for the endogeneity and selection into migration.

Despite the rapid rise of women’s education and the fall of their fertility rates in Iran, female labor force participation remains low. This paper uses twins at first birth as an instrumental variable to estimate the impact of number of children on mothers’ participation in the labor market in Iran.

Can declining employment opportunities for women reverse the fertility transition? This paper presents new evidence that the demographic transition has not just stalled, but in fact reversed in Egypt. After falling for decades, fertility rates are increasing.

This study investigates one important education policy related question: How large are the efficiency gains from early tracking for the students who are streamed? In order to answer this question, we evaluate the effect of a policy change which created an exogenous variation in the early tracking status of the students.

We investigate the impact of global and local crises on bank stability and examine the effect of owning bank subsidiaries in other countries. We consider banks from MENA countries which experienced both types of crises during our sample period. Our findings highlight a negative impact of the global financial crisis of 2007-2008 on bank stability but, on the whole, no negative impact of the 'Arab Spring'.

The objective of this paper is to explore the nexus between exports performance and components of the investment climate. The contribution of this paper is twofold. First, it fills the gap in the available literature by examining not only the impact of investment climate on productivity, but also on the decision of the firm to become an exporter. Second, given the scarcity of the available literature on MENA countries, a developing MENA country, namely Egypt, is used in the empirical exercise.

We study the effect of restrictions on trade in services on manufacturing productivity for a broad cross-section of countries at different stages of economic development. Decreasing services trade restrictiveness has a positive indirect impact on the manufacturing sectors that use services as inter-mediate inputs in production.

This paper does not discuss the benefits of diaspora returnee or incentives offered to diaspora members to return to their home country to invest, create jobs or work in the government. It is rather about how to tap into those citizens that live abroad and can still help their country of origin in various ways beyond sending remittances.

The objective of this paper is three fold: to investigate the host country determinants of Chinese OFDI in general, to examine if Chinese OFDI in MENA is different than elsewhere, and to test if Chinese OFDI in individual MENA countries is different than in other countries.

Turkey has been deeply integrated with the EU, Turkey’s largest trading partner, particularly following the Customs Union (CU) agreement. However, the free trade agreements (FTAs) signed by the EU with third party countries may create some unfair competitive pressures, market share and welfare losses for Turkey.

This paper analyzes productivity of domestic and services trader firms in Turkey using detailed firm-level data. Three hypotheses are tested accounting for unobservable heterogeneity across several dimensions as well as observable firm level determinants of productivity.

The main aim of this paper is to investigate the effects of Tunisian trade policy on household welfare. We use the recently released household survey data in combination with estimated tariff pass-through elasticities and wage elasticities obtained from Mincerian equations.

The proliferation of global value chains makes the domestic production of goods increasingly dependent on inputs from foreign sources. Apart from traditional determinants in the choice of sourcing partners for intermediate inputs, bilateral political relations between the trading
countries are likely to play an important role.

Scholarship on economic informality in the social sciences is divided between macro-level accounts and detailed micro-level case studies, with widely different conclusions. This paper calls for a political economy approach to integrate insights from these divergent lines of scholarship. It presents a detailed case study of illegal trade networks in Southern Tunisia.

Disclosure and transparency are crucial elements in the improvement of overall corporate governance. Disclosure is a very important mean of communication between management and outside investors. This study investigates how institutional blockholders impact levels of voluntary disclosure released in annual reports of some of the most active companies in the Egyptian Stock Exchange.

The paper aims to provide an understanding of the budgetary process of Bahrain and of the factors that have affected the quality of budgetary institutions and outcomes. It argues that weak political institutions, rather than natural resource wealth, are the main driver behind fiscal spending patterns in Bahrain.

There is a widespread belief that some religions are essentially more political than the others. This paper tries to provide an
alternative hypothesis. It will be shown through a political economy model that people in charge of religious institutions do cost-benefit analysis in politicizing religion.

This paper is a first step in assessing small business owners’ participation in contentious politics during and following the Arab Spring. Combining cross-country survey data with fieldwork in Jordan, I find that the region’s small business owners largely abstained from the Arab Spring, protests more broadly, and even civil society organizations.

Natural resource wealth has been linked to a wide range of adverse economic and political outcomes1. The relationship between resource wealth and government transparency, however, remains both highly salient and poorly-understood. Academic studies suggest that petroleum wealth is associated with reduced transparency, meaning fewer public disclosures about government policies, institutions, and activities.

Arab Spring has swept Middle East and North Africa. Although the reasons behind this revolutionary albeit mostly unfruitful social phenomenon is unknown, economic reasons such as income inequality and lack of income mobility has been mentioned.

The absence of a uniform standard for stress tests is a key challenge today for Central Banks in the Gulf. This paper puts to test the balance sheets of 3 of its largest 10 banks. To our knowledge, this is the first study in the literature that evaluates banks in the region across the Comprehensive Capital Analysis and Review (CCAR) stress scenarios.

The present paper deals with the issue of bank capital adequacy and risk management within a stochastic dynamic setting. In particular, an explicit risk aggregation and capital expression is provided regarding the portfolio choice and capital requirements special context.

We investigate the dynamics of the co-movement and causal relationship of the GCC sukuk (Islamic bond) returns with global financial distress and various uncertainty factors (including financial and commodity market and economic policy uncertainty indices), using the quantile regression analysis.

A large empirical literature has been developed, in the two last decades, to compare performance of Islamic and conventional banks. This paper contributes to this literature using a new methodology allowing a better comparative performance evaluation between Islamic banking and conventional banking in MENA region over the period 2000-2012 and applies a new method based on the Metafrontier Directional Distance function.

We examine the degree of sensitivity to interest rate changes among creditors and depositors in Islamic and conventional banks. We estimate bank lending channel proposed by Bernanke and Blinder (1992).

Credit growth has been an important indicator of financial stability for emerging economies in recent years. Macroprudential and monetary policies have been used to curb the growth of credit that arose with the surge in capital inflows to these countries.